Download White Papers - AgencyFinder

Special Executive Report
Why Purchasing
Stalks Marketing
for Agency Control
Business Partnering International Ltd.
Special Executive Report
Why Purchasing Stalks Marketing
for Agency Control
Richmond, VA – A specter is stalking the advertising
industry, one more fearsome than Freddy Krueger. It’s corporate purchasing. At a growing number of client companies, the procurement officer is supplanting the chief marketing officer (CMO) when it comes to choosing an advertising or public relations agency. Why has this happened?
What is to be done?
Define the Problem; Resolve the Problem:
Much has been written lately about the conflicts that occur
when a procurement department leads the search for an
agency. But little has been said about how to resolve this
issue. Do agencies have to resign themselves to clients who
micro-manage? What are the risks for clients who insist on
formulizing the art of advertising? In this special executive
report, we’ll address some of these concerns and identify
potential solutions.
It began with corporate belt-tightening, where clients were
less willing to put their faith in long-term returns and more
interested in immediate bang for the buck. As a result, clients
are now seeking tangible ROI (return on investment) and
scrutinizing the agency's bottom line — disregarding other
less tangible aspects that agencies argue are indispensable to
successful advertising and publicity.
In several recent cases, advertisers looking to save money
have requested information that many agency executives
considered inappropriate. One example illustrates this danger
especially well. Within the framework of an existing relationship, but after a yearlong compensation negotiation
between Deutsch (the agency) and Pfizer (the client),
Deutsch pulled out due to what it saw as improper requests
for information. In a much-hyped episode, the agency was
reportedly asked to reveal the salaries of employees working
on various campaigns and the profit margins on other
accounts, according to sources. While Pfizer denied these
claims, this type of scenario is becoming increasingly more
common in the sensitive world of client/agency negotiations.
How could both sides have avoided such a debacle? Perhaps
a more careful, early evaluation of the client’s criteria would
have revealed fissures that could have been addressed as part
of the negotiation. An early diagnosis of the problem also
could have lead to the decision that the relationship was
irreparably flawed—a conclusion that in hindsight would
have been preferable to the public falling out.
As corporate leaders peer at all elements of their business
with an eye toward cutting costs, is it any wonder that advertising and marketing expenditures are coming under the
microscope as well? These bottom line concerns have been
the driving force behind the new trend for procurement’s
involvement in advertising and agency selections. In a world
saturated with advertising and where the effectiveness of
advertising campaigns is increasingly being called into question, it was inevitable that top managers would demand
accountability for dollars spent.
More and more, measuring that accountability has been
taken from marketing and assigned to procurement. In many
businesses, corporate leaders have called in procurement
(aka purchasing or sourcing) to leverage and in some cases
manage the agency selection process. Until recently, this
shift has been defended by marketing and agency personnel
as little more than bean counters seeking to drive down the
cost of something difficult to quantify. Although advertising
has been the exclusive domain of corporate marketing managers for years, that is changing. Despite anyone’s opinion of
the trend, one thing is certain—the involvement of procurement represents a major sea change for the advertising industry and a challenge to CMOs. Those who fail to harness this
wave are sure to be left in the wake.
The probing questions asked by Pfizer would not fly at IPG’s
Martin Agency in Richmond, Virginia, according to Chris
Shumaker, the agency’s senior vice president and director of
development. He said no client has ever asked for agency
employee salary levels and he would consider a request for
that type of information inappropriate.
“Some of that information is very personal. It’s none of their
business,” Shumaker said. “That’s like asking someone about
their mortgage payment.”
1
It does seem clear that advertisers are taking an increased
interest in all aspects of their agency’s business, but it
remains to be seen whether they are asking the right questions at the right time.
services, skills, talent, staffing, office locations and personalities that will lead to an effective marketing partnership.
In another example, the recent procurement-managed E.I.
DuPont de Nemours agency review included an unusual
request. Twenty-two invited agencies were asked to submit
details on their procedures, if any, for conducting employee
criminal background checks. It was suggested that Dupont's
use of dangerous chemicals prompted the need for this information, but asking the question at the outset was out of character. While surprising, this type of forward thinking may
have saved DuPont time and money by avoiding negotiations
with unqualified agencies.
If marketing and purchasing managers on the client side,
along with ad agency and pr executives on the other side,
were challenged to come together to create a process for
defining and finding the perfect agency, they would start by
compiling a list of agency elements (criteria). Then, to reduce
the size of a group of agency candidates, clients agree there
is no better place to start than to look for those with experience in “our” business category. That list of vertical markets
would exceed 150.
Defining The Perfect Agency Model
Then they would list agency services like account management or account planning, brand equity development, creative services, media buying, public relations, strategic planning and development and many more. That count could
approach 100.
The DuPont review also highlights the procurement-driven
trend for consolidation. This $70 million review, won by
New York’s WPP Group agency Ogilvy & Mather, was engineered to reduce the number of agencies and the potential for
work duplication, in effort and expense, that occurs when
multiple agencies are assisting the same client. With larger,
more diverse advertising accounts on the loose, clients will
be challenged to find appropriate agencies for the job.
Advertising and publicity messages created by each agency
are meant for specific “recipients,” as in market specialization — consumer-types or business-to-business types. Each
agency should mark those where they have previous experience. This list would include demographics such as male,
female, affluent, religious, African-American, Hispanic,
urban, international, dealer/distributor organizations and
more. This list might exceed 25.
Protecting the Corporate Advertising
Investment
Aside from squeezing agencies in the area of costs, how can
clients protect and safeguard their advertising investments?
How do a procurement and/or client marketing executive
define their criteria and find suitable agencies when conducting an agency review? They’re faced with one major challenge due in part to the overwhelming number of agencies. In
the U.S. alone, in SIC 7311 (Advertising Agencies &
Counselors), there are more than 28,700 ad agencies. In SIC
8743 (Public Relations), there are another 17,000 firms.* To
conduct an effective search to locate a manageable pool of
prospects, there must be some way to identify that small
handful that possess the category experience and offer the
Advertising Agencies & Counselors
Public Relations Firms
A remaining but elusive variable is chemistry or personality.
Chemistry surfaces in early conversations and later in faceto-face meetings, and is often credited as the real reason an
agency gets selected. But it would be nice to spot “goodverses-poor” earlier than that. Each agency could write short
essays about themselves working from standardized topics.
By reading these essays, clients could sense the potential for
great chemistry, based on the fact that in business, “birds of
a feather do flock together!”
SIC 7311 – 28,700 Count
SIC 8743 – 17,000 Count
Client Companies
0
5000
Assorted SICs
10000
15000
20000
25000
Figure 1 (Source: BPI 2003)
2
30000
the state, attorneys pass the bar, teachers must be certified,
and realtors must possess a license to do business.
After completing this aggregating process, this client and
agency team would find that their work to define the “perfect” agency included 400 to 500 attributes, and would serve
as the foundation for an interactive database. Searchers using
this database would need a menu or template to define their
requirements — which could be these same agency attributes
presented to the searcher, but in reverse. Finally, they would
build search-engine algorithms that would allow clients to
find agencies with attributes equal to or greater than their
declared minimums.
According to the National Association of Realtors (NARs), a
real estate professional may only call him or herself a
“Realtor®” when he or she is a registered member of the association and subscribes to its strict code of ethics. But first,
each Realtor® has already passed a battery of tests and examinations.
Shouldn’t clients who spend millions on advertising and
marketing have similar assurances about the accreditation
and professionalism of their advertising or public relations
agency?
To make this service available to clients and agencies everywhere and at any time, this would be an Internet offering,
with quick and easy on-line registration and data entry for
every ad agency, pr firm and marketing company worthy of
being hired by serious clients.
At present, the oldest and largest professional advertising
membership organization is the American Association of
Advertising Agencies or 4As. 4A members are meant to
abide by a series of requirements stated in Qualifications for
AAAA Membership, which among other things speaks of
independent ownership, objectivity, adequate staffing and
fiscal responsibility. But unlike NARs, there is no requirement that members demonstrate their qualifications through
a battery of tests with subsequent licensing or certification.
Clients are forced to make a leap of faith, hoping that each
agency honestly represents itself.
Agency Accreditation
In our “perfect agency” scenario, agency searches would not
be hit-or-miss or based on well-meant references from media
reps or client colleagues. Agencies would be held accountable for their claims by an accrediting body that would verify or certify the agency’s credentials. This raises the question, is there such a body or service? Most major industries
require some form of accreditation. Doctors are licensed by
Client Search
Vertical Market Experience
Agency Services
Market Specialization
Geographic Location – States & International Countries
Agency Compensation Options – As Defined
Number of Employees – By Groups
Capitalized Billings – By Ranges
Years in Business – By Ranges
Multiple Essays
Case Histories
Agency Candidates
Figure 2 (Source: BPI 2003)
3
tives had died in a car crash. He suggests the headline,
“Hucksters Go to Hell in a Honda.” He may not be far from
the truth. According to a Gallup poll, advertising practitioners rank just below insurance salespersons and just above
automobile salespersons in the public’s perception of honesty. As a result of this distrust, “top managers are taking a
dim view of advertising,” Ries said. “They are questioning
whether they should be spending all that money.”
There was a time when 4A membership was considered a
valuable and respected Seal of Approval, but unfortunately
that is no longer universally accepted. And in an interesting
twist of credential setting, the 4As did create a definitive set
of criteria entitled “Rules of the Road for Agency Search
Consultants” as published and posted on their web site.
Ironically, agency search consultants are excluded from holding 4A membership, can-not pay dues, can-not vote or voice
an official opinion, but are involuntarily held to standards set
by an organization whose members ultimately benefit from
recommendations made by those consultants.
Still Ries maintains that advertising does have a legitimate
use. While Ries understands that a business cannot afford to
throw money away, he agrees, “that the procurement department tends to look at everything through the lens of cost.
This may result in immediate dollar savings but it misses the
purpose of advertising: to buy time and space in media to
keep the product in the mind of the consumer. A less expensive agency may not always create effective and memorable
advertising and/or it may not be the best agency for the
client.”
As a trade association, the 4As is primarily an advocacy
group, frequently lobbying to protect member agencies from
restrictive changes in advertising regulations. Yet it appears it
has not protected its members from the greatest looming
danger — client doubt and distrust.
“The Fall of Advertising & The Rise of PR”
Can Procurement and Marketing
Really Work Together?
Al Ries, marketing strategist and co-author of the book “The
Fall of Advertising & The Rise of PR,” argues that advertising does not have much credibility with consumers today. He
believes that the power and involvement of procurement
departments will only increase as businesses look for ways to
save money.
Part of getting these two on the same page is getting them to
understand each other's frame of reference. Procurement historically has solicited vendors for price and availability proposals for goods or services defined by people in other corporate departments. Those departments created their specifications and forwarded them to procurement. Because procurement looks at a proposal primarily from the standpoint of
cost, it’s not surprising they have little experience, sensitivity or appreciation for detailed communication and creative
needs. But these issues can be addressed with better dialogue
between the departments and with additional outside encouragement from agencies that want the client’s business.
In his book, Ries tells a story that reveals how people feel
about different professions. He recounts the story of four
nurses from New York City who died after driving off the top
PR
ng
si
rti
ve
Ad
“You have to understand the mindset of the purchasing
agent,” says Ries, “Purchasing people deal in hard values;
data, especially prices, terms, guarantees, etc. Advertising
people deal in soft values such as creativity which can’t be
measured.”
Figure 3 (Source: BPI 2003)
Chuck Hatsis, president of Surge Consulting, is a procurement specialist who also understands the inner workings of
marketing. He stresses the need for both sides to understand
that they are on the same team.
of a five-story hotel parking lot in Virginia Beach, Virginia.
He notes that people were universally saddened by this story
and that a headline in a newspaper about the funeral stated,
“Angels Take Wing As 1,600 Say Goodbye.” He then asks
how the public would have reacted if four advertising execu-
“Neither can do it alone,” Hatsis said. “Procurement can’t
buy advertising and make up for marketing analysis.” And
marketing often lacks the patience to deal in dollars. “When
you demonstrate you can speak both their languages, you
earn some respect.”
4
Agencies Where Art Thou?
One marketing executive with a major Midwestern reinsurance company said his organization was able to teach its purchasing people about advertising and how it works. After
learning more about the topic, they were able to work effectively with the marketing staff.
In preparing for her $25 million search to consolidate from
six agencies to one, Miller discovered an Internet and off-line
consulting service specifically designed for client and agency
matchmaking. Miller read about Agencyfinder.com, a service
of Business Partnering International, Ltd. (BPI), headquartered in Richmond, Virginia. Charles G. Meyst, CEO of Sales
Marketing Institute, whose firm taught up-scale new business
development techniques to ad agencies and public relations
firms, founded BPI in 1997.
“We had to educate our purchasing department on the difference between hiring a creative agency and purchasing supplies,” he said. “Once they understood this, they were able to
work with us.”
Are Agencies Truthful?
Miller discovered that her Agencyfinder search included preliminary on-line consideration and selection from more than
4,000 Certified agency offices, and then continued with
extensive off-line telephone follow-up and ongoing consultation with Agencyfinder staff. The service allows a client to
conduct its own confidential review, and outlines a sequence
of events that includes initial agency telephone interviews,
then the examination of agency materials and relevant creative samples as evidence of work-product. Agencyfinder
also advocates that the initial client/agency meeting include
a handful of agency tours and capability presentations.
Winning agency selection is determined after agency presentations take place at client headquarters where all corporate
decision-makers should be in attendance.
Advertising agencies may possess creative genius, but
according to many clients, they are not very forthcoming in
assessing their strengths in an objective fashion. Most agencies talk about their values. One value frequently mentioned
is “fun.” According to that Midwestern reinsurance company
executive, fun is not an important value in the client/agency
relationship.
“So many of them talk about fun,” he said. “I don't need
another friend. I want them to do my work.”
Ries said that because agencies focus on creativity, they pay
much less attention to objective measurement. “It's a creative
business. They would rather focus on awards as opposed to
measuring anything,” Ries said.
“For me, it [Agencyfinder.com] was very helpful,” Miller
said. “Because Chuck Meyst and his people are talking with
leaders in the communication field every day and because he
really knows the business, he (they) is up on the latest candidates, techniques and trends.” Beyond that, Miller said
Agencyfinder saved her company time and money. Since the
service is paid for by member agencies, clients and consultants search for free.
Evaluating an agency’s credentials can be complicated by the
fact that some agencies overstate their qualifications, according to Rosanne Miller, Global Brand Manager for DuPont’s
Corian & Zodiac Surfaces Division. While Miller understands that every agency likes to publish glad tidings, she
said some overstate the importance of their role in an advertising campaign, make the false claim that they are the sole
agency for a client when there are several agencies serving
the client, and misrepresent their current client base.
“A consulting service like this should help separate out past
or current clients,” Miller said. “They can tell you if the
agency is the head agency or the support agency on a certain
project.”
“They represent themselves as the architect of a strategy
while they only implemented the strategy,” Miller said. “Or
they represent they are doing work for a client that they do
not have as a current client.”
Meyst recognizes Agencyfinder is unusual. “In 1997, we
introduced a brand-new and still unique industry concept – a
no-cost agency-search consulting service based on an
Internet database of registered and subsequently certified
agencies. Our powerful search algorithms empower clients
so they can define and manage their own review, selecting
from top-ranked agencies in North America, both industry
leaders and rising stars. Although we were doing this long
before the procurement people got involved, ironically and
after more than 3,300 client searches, it seems to be rather
precisely what procurement and marketing need today.”
But not all the blame for communication breakdown rests
with agencies, according to Miller. Clients and agencies
sometimes fail to develop a beneficial working relationship
because the client does not clearly communicate its needs.
“An agency is only as good as the direction given by the
client,” Miller said. “If you don't have good dialogue, the
agency plays a guessing game.”
5
“The not-so-transparent practice of “leaking” news of a
search to the press is neither a scientific or quantitative way
to find qualified agency candidates,” said Meyst.
Meyst is passionate about the fact that agency creative samples and the examination of work-product take place only
after client and agency have held an exploratory phone conversation to clarify the assignment.
Procurement people want to consider other factors in addition to price, but they do not want subjective opinions; they
want objective facts. Instead of just one element (such as
agency fees), a service like Agencyfinder generates a bundle
of objective facts and figures that can be used to make an
agency selection.
Agency Candidates
Case Histories
Multiple Essays
Years in Business – By Ranges
Capitalized Billings – By Ranges
Number of Employees – By Groups
Agency Compensation Options – As Defined
Geographic Location – States & International Countries
Market Specialization
Agency Services
Vertical Market Experience
Client Search
Meyst cautions against relying on Internet directories that
offer no consulting assistance. “Even a single misstep or
inappropriately defined criteria can result in agency candidates being markedly off-target. Contacting the wrong candidates not only wastes client and agency time, but also runs
the risk of announcing the client’s confidential search to the
business public,” said Meyst.
Agency Candidates (20–35)
Agency Invitations (10–15)
Agency Site Visits (4–7)
Final Presentations (2–3)
Winning Agency (1)
Figure 4 (Source: BPI 2003)
6
Show Them The Money!
make their offerings clear and accessible. The best way is to
subscribe to the most comprehensive search-system(s) in the
market. But agencies will need to make the investment and
take the time to enter detailed non-confidential information
showcasing their experience, credentials, capacity and
uniqueness. By using such systems, purchasing managers
and their marketing colleagues can find the RIGHT agency at
the RIGHT time and reduce the cost of the search in real
money and lost opportunity costs.
While agencies may achieve a reputation for innovative
advertising, procurement managers, with the backing of top
executives, are still asking agencies to “show them the
money.” They want to talk about value and market growth
before they discuss innovation. Measuring these aspects is
difficult and most advertisers admit that it is hard to quantify
the impact of advertising and public relations; however, it is
becoming increasingly important that agencies learn to speak
the language of dollars and sense.
Organizations where procurement and marketing butt heads
will be the losers. As procurement challenges marketing for
advertising and pr agency control, the industry is about to
experience a major sea change. A damaging tidal wave can
be avoided only if everyone has their oars deep in the water.
Let it be a win/win for everyone.
A Win For Everyone
As procurement takes control of agency selections and marketing expenditures, in-part to cut out waste in the agency
selection process (in both time and effort), agencies need to
###
This Special Executive Report was sponsored by
Business Partnering International, Ltd.
4327 Cox Road, Vantage Place
Glen Allen, VA 23060
(804) 346-1812
fax: (804) 346-1940
e-mail: [email protected]
Special thanks to:
Michael Bawden, President & CEO Brand Central Station
John Beardsley, Chairman & CEO (Retired), Padilla, Speer and Beardsley
David Clauson, Global Marketing Communications Leader, GE Employers Reinsurance Corporation
Andrew O’Hearn, Manager, Communications & Public Relations, Reckitt Benckiser
Phil Pavoni, Purchasing Manager, Indirects, Brown & Williamson
Stuart H. Sanders, Chairman, Sanders Consulting Group
Stephen E. Toler, CEO, Mosbygrey llc
*Source: D&B’s zapdata.com, May 19, 2003
© Copyright 2003, Business Partnering International, Ltd. Richmond, VA 23060
7